M/S. BASTI SUGAR MILLS CO. LTD. AND ORS. vs. COMMISSIONER OF INCOME TAX, DELHI & RAJASTHAN

CIVIL APPEAL No. 1364/1967Supreme Court[1972] 1 S.C.R. 88724 September 1971Bench: 2 JudgesAuthor: C.A. VAIDYIALINGAM, P. JAGANMOHAN REDDY9 pages
AI SummaryDismissed

What were the facts?

The appellants, three sugar companies, paid commission to their selling agent, M/s Gokul Nagar Sugar Mills Co. Ltd. The Income-tax Officer initially allowed these deductions for assessment years including 1947-48, 1948-49, 1949-50, and 1950-51. However, for assessment year 1952-53, the Income-tax Officer issued notices under Section 34 of the Income-tax Act, 1922, proposing to disallow the commission, arguing the selling agent rendered no service. The Appellate Assistant Commissioner granted partial relief regarding sub-agents but upheld the disallowance for the main selling agent. The Appellate Tribunal concurred. The appellants sought reference of four questions to the High Court under Section 66(1). The Tribunal rejected three, but the High Court directed reference of the fourth question concerning Section 34's applicability, deeming the other three as questions of fact.

What did the Supreme Court hold?

The Supreme Court held that the Tribunal's consideration of the evidence was technically adequate. While witness R was not named, the Tribunal addressed the relationship between the selling agent and R's firm, and the significance of a telegram indicating direct dealings between the appellants and R's firm (M/s Ramdev and Company), which negated the selling agent's role. Witness S's evidence was found to be contradictory and unreliable, with the Tribunal providing reasons for not acting on it. The two receipts, relied upon by the appellants, lost their significance after the rejection of the witnesses' testimony. The Court found that the Tribunal's findings were based on material on record and were reasonably reached. Therefore, the High Court was justified in holding that the first three questions were questions of fact and in declining to direct their reference. The judgment of the High Court was confirmed.

What were the issues?

1. Whether the Appellate Tribunal erred in not considering the evidence of two witnesses (R and S) produced by the appellants, and two receipts showing payments to sub-agents, thereby arriving at findings of fact without considering material on record? (Question of mixed law and fact, turning on the Tribunal's duty to consider evidence under Section 66(1) of the Income-tax Act, 1922). Assessee's Contention: The Tribunal failed to consider crucial evidence, specifically the testimony of witnesses R and S, and two payment receipts, leading to an erroneous conclusion. The High Court's view that not every piece of evidence needs explicit mention was questioned. Revenue's Contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 34,Section 66(1),Section 66(2)

AI-generated summary — verify with the full judgment below

~· 887 A M/S. BASTI SUGAR MILLS CO. LTD. AND ORS. B c D E F G H ~ l COMMISSIONER OF INCOME· TAX, DELffi & RAJASTllAN 1 September 24, 1971 [C. A. VAIDIALINGAM AND P. JAGANMOHAN REDDY, JJ.] Income-tax Act, 1922, s. 6~Reference to High Court-Tribunal's ffndings of fact whether arrived at without consideration of materiafs on record-Tribunal need not refer In its order to insignificant evidence.

The three appellant companies were controlled by 0. Another com- pany which was the selling . agent of the three appellant companies was also controlled by G.

The question in Income-tax proceeding!I was whether the commission paid to the selling agent was a deductible item.

In me origm•l assessments tor 1947-48 in the-cases of the three appellants the Income-tax Officer allowed the deduction but later he issued notices under s. 34 of the Income-tax Act, 1922 on the footing that in the cir- cumstances of the case the commission was not allowable since the selling agent rendered no service whatsoever so as to earn any commission.

In making the assessment under s. 34 it was so held by him. In the appeals filed by the Appellant companies, the Appellate Assistant Com

The order continues below.

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